March 24, 2017

Regulators tackle key issues for state system in national meeting

Key issues with NCUA, adding the "S" (for sensitivity) to CAMEL, credit unions’ agenda in the 115th Congress, and the new administration’s impact on the state financial regulatory system and more issues were all topics for discussion by state regulators from across the country during their annual National Meeting this week in the Washington area. Among the highlights heard by the nearly 60 regulators attending:

NASCUS President and CEO Lucy Ito gave an overview of NASCUS’ positions and strategic initiatives for 2017 and beyond, with an emphasis on enhancing the association’s already strong membership among state regulators (all state credit union regulatory agencies currently belong to NASCUS) and building membership among state credit unions.

NCUA senior staff (Executive Director Mark Treichel, Office of Examination and Insurance Director Larry Fazio and Deputy General Counsel Lara Rodriguez) participated in dialog with the group about the overhead transfer rate, future of joint supervision and and training for state examiners.

John Ryan of the Conference of State Bank Supervisors (CSBS) offered an overview of the impact on the state banking system of transition in Washington, noting that both CSBS and NASCUS are committed a dual chartering system that “allows local capital to be reinvested in local community.”

CFPB representatives outlined the bureau’s emphasis for the coming months.

The credit union position in the 115th Congress was addressed by CUNA Chief Advocacy Officer Ryan Donovan, who offered insights into prospects for financial regulatory reform legislation, alternative capital and other issues.

Soyong Cho, a partner in the law firm K&L Gates gave a comprehensive review of current legal developments related to the state system, including the American Bankers’ Association lawsuit against NCUA over its field of membership regulation, and the CFPB’ appeal of the decision rendered against it in the lawsuit brought by PHH Corp. (which found the structure of the agency unconstitutional).

State regulators from Michigan (John Kolhoff), Montana (Rick Christianson) and Mississippi (Rhoshunda Kelly) described how their states implemented, or are setting into place, the “sensitivity” (S) component in their CAMEL exam rating systems (and how credit unions are positively responding to it).

Other issues and presentations addressed included those on marijuana business banking and regulation, emergency management and disaster recovery, cybersecurity and interstate branching.

(In photo block -- Scenes from the State Regulators National Meeting, March 20-21 (clockwise, beginning from top left): Wade Cooper of IL listens to the discussion; Rose Conner of NC and John Kolhoff of MI share thoughts; CUNA's Ryan Donovan talks about congressional, federal issues; AZ's Tami Smull shares her views; NASCUS President and CEO Lucy Ito engages the group; Charles Vice of KY makes a point as NASCUS Chairman Mary Ellen O'Neill and Jorge Perez of CT listen.)

PLAN TO REVISE RBNW RULE, TACKLE SUP. CAPITAL REPEATED BY AGENCY

NCUA intends to substantially revise the risk-based net worth rule and permit credit unions to issue supplemental capital for risk-based net worth purposes, according to comments by agency Acting Chairman Mark McWatters contained in a joint report by federal regulators sent to Congress this week. Additionally, McWatters wrote in the “NCUA Report” section of the JointReport to Congress: Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA), published by the members of the Federal Financial Institution Examination Council (FFIEC), that NCUA also plans to revise and finalize the proposed field of membership and securitization rules, and; modernize the agency’s rules with respect to the Central Liquidity Facility, stress-testing, and corporate credit union rules (among others). The changes will be made, he wrote, “without limitation.”

Additionally, McWatters stated, all of these changes will be “in strict compliance with the Federal Credit Union Act and other applicable law.” The acting chairman also noted that the agency will “work with Congress to update the Federal Credit Union Act (FCUA to facilitate credit union operations and growth so as to ensure the safety and soundness of the NCUSIF.” The agency is not required under the law to participate in the EGRPRA process (as are the Federal Reserve, OCC and FDIC). However, the report notes that the current NCUA board “embraces the objectives of EGRPRA and in keeping with the spirit of the law, the Board has participated in the review process. (The NCUA also participated in the first EGRPRA review, which ended in 2006).”

NASCUS has participated in all four of the recent comment calls made under EGRPRA from 2014-15.

PANEL CHAIRMAN STILL BULLISH ON FINANCIAL REG REFORM BILL

With assurances of support from the White House and congressional leadership, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) this week predicted that Congress will pass financial regulatory reform legislation this year. Hensarling, before speaking to a banking industry meeting in Washington, told reporters that the president, vice president and House Speaker had told him that financial reform – including revisiting the Dodd-Frank Act – is a priority in 2017.

However, in remarks to the bankers, Hensarling conceded that there are challenges ahead, particularly in the Senate where Banking Committee Chairman Mike Crapo (R-Idaho) must find enough Democrats to support the reform effort. In any event, the House chairman said he plans to re-introduce his financial regulatory reform measure, the Financial CHOICE Act, sometime soon. But he also said his committee would be considering smaller parts of the CHOICE measure in separate bills as well, urging the bankers to "keep hope alive,” and predicting that “provisions of the CHOICE Act will be able to survive."

A version of the Financial CHOICE Act (which stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs”) was first introduced last summer (in the previous Congress). That version contained a provision expanding the NCUA Board from three members to five. In early February, however, a memo from the chairman to committee leaders, outlining a revised CHOICE Act for this Congress, recommended that the NCUA Board keep its current structure. NASCUS sent a letter to Hensarling last month reiterating the state system’s support for a five-member board.

… AND FOR REG REFORM, LAY OFF CU TAX EXEMPTION, SENATOR ADVISES

Meanwhile, also at the bankers’ conference, a Senate Banking Committee member advised the audience to find a way to work with credit unions on regulatory reform – and “agree to disagree on the issue of taxes with those credit unions.” Sen. Mike Rounds, R-S.D., told the bankers that they would be better off working with credit unions to secure reforms of the Dodd-Frank Act, and to separate the tax exemption issue when they are pushing Congress to do so. “I think you can get the regulatory reform, but you and the credit unions are going to have to work together to get that done,” he said. (Rounds’ remarks came after a banker lobbyist told the group that “if there is any time to get rid of a Depression-era tax exemption, it is right now,” noting that “the amount of money, the amount of customers credit unions are pulling from the banking industry is outdated.”)

BUREAU OPENS ‘ASSESSMENTS’ OF REMITTANCES, MORTGAGE RULES

A review of CFPB’s rule on remittances is underway, and soon review of its major mortgage rules gets underway – both part of the agency’s mandated five-year “assessments” of its regulations. By law, the agency is required to review its regulations every five years. Last week, the agency announced it was time to review its remittance rule, and is seeking comments by May 23 (60 days from today’s publication of the proposal in the Federal Register) – particularly for suggestions of sources of data and to generally provide information that “would help with the assessment.” A report on the assessment of the remittance rule, the agency said, will be issued in the fall of 2018, and will (as required by law) address the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act and “the specific goals of the remittance rule, using available evidence and data.” This week, the agency said it is also starting its assessment of its major mortgage rules – also mandated by law, but also (according to a CFPB spokesperson) as a matter of “common sense.” No comment date has been announced for the mortgage rule assessment.

WASHINGTON VETERAN RESUMES POSTING IN NCUA’S PACA

Capitol Hill and federal regulatory agency veteran Bob Foster has been appointed to another stint in NCUA’s office of public and congressional affairs (PACA), this time as director. He replaces Todd Harper, who resigned last month. Foster previously served as deputy director for the public affairs office, from 2008-11. His other positions on the Hill and in federal service include: legislative director to Sen. Roger F. Wicker (R-Miss.), deputy assistant secretary, office of legislative affairs, U.S. Treasury Department; staff director of the House Committee on Financial Services; and legislative director and senior policy advisor to the late Rep. Michael G. Oxley (R-Ohio).

SUMMIT PLANNING LOOKS AHEAD TO STATE SYSTEM'S FUTURE

The state credit union system – indeed, the entire credit union movement – is at a crossroad for the path the future, and the 2017 NASCUS State System Summit will offer directions on which path to take, Aug. 29-Sept. 1 in San Diego. Planning for the Summit – a unique event which brings together credit union regulators and practitioners for mutual exchange and dialog – has already identified a number of areas of emphasis to help the state system plan for the what’s ahead, including: The future of the corporate credit union system; the outlook for cross-border business and its impact on credit unions; prospects for the payment systems; projections for small credit unions, and much more. Headquartered at the Westin Gaslamp Quarter Hotel (located next door to the city’s historic Gaslamp Quarter), the three-day event is open to all credit unions, regardless of charter, from around the country. See the link below for more details, including registration and hotel reservations.

NASCUS has posted a summary of the CFPB’s recent proposal to delay its final rule on prepaid accounts; see the link below … The North Carolina Credit Union Division has two job openings – one for an examiner (financial analyst), and one for a temporary examiner; see the Career Opportunities page on the NASCUS website (at the link below) for obtaining additional details … Reminder: The NCUA CUSO Registry for new organizations closes in one week (March 31) for annual reaffirmations – see the link below to complete this required process on line (there is no fee required).